If there's one factor that's more important than any other in growing a business, it is surely access to enough cash.
Getting hold of money is often far from easy. Banks may be unwilling to take risks, especially in the present economic climate, and business owners often feel the only option left is to sell a stake in the company.
But many smaller firms are unaware of the full range of funding options that are available, according to Mark Crossfield of Bristol-based M3 Corporate Finance, who adds that when it comes to raising growth finance, what smaller firms think they want is not always what they need.
M3 Corporate Finance helps small and medium-sized businesses secure growth capital and provides transaction support in acquisition, sales or buy out situations. Its team of experienced finance professionals from banking and accountancy backgrounds offers access to a variety of equity and debt-based funding solutions through its network of providers.
M3 says many growing companies fail to raise the necessary capital simply because they chase after the wrong type of funding or they dont have a proper business plan or financial strategy in place. Understanding the full range of financing options that are available and selecting the most appropriate solution is therefore crucial when trying to secure growth finance.
A business owner may think, for example, that raising private equity by selling a stake in the business is the best way forward. But why give away part of the company if the money can be raised by other means?
Crossfield says: "We recently helped a building management firm that had insufficient cash flow to support its rapid expansion and needed to raise working capital. The company had no tangible business assets and had lined up several private equity deals, but these would have diluted the business by 16 per cent. The firm had also spoken to its bank and a number of factoring houses – all to no avail.
"We presented a business plan against a strict remit where personal security was not on offer. Following negotiations with another bank, a sum of £200,000 was agreed against an unsupported guarantee.
"We also persuaded a factoring house to agree to advance 65 per cent of all debtors and a payroll line of £50,000 was introduced. Payroll finance is a new finance option which provides firms with nine weeks credit to pay staff and is unsecured."
In this case the firms equity remained intact and it now enjoys a proactive and positive relationship with a new bank.
They key to a happy outcome was partly about approaching the right people and in the right way, but also about anticipating the issues a funder might have and preparing to address them. This is one of the most important inputs from the financial adviser and is down to their skill and relevant experience in a particular field.
Firms that are unable to secure conventional forms of funding should certainly consider alternatives such as payroll finance. Another possible option is invoice finance: in this kind of borrowing, a factoring house will forward up to 90 per cent of an outstanding invoice and then chase the customer for payment.
There are also working capital financing products such as stock and cash flow finance, whereby specialists fund the purchase of stock or cash flow. New businesses, particularly those based in inner city areas, may also qualify for European grant aid through the Objective One programme.
These are just some of the alternative financing solutions that are available to start-ups and growing businesses. Firms looking to secure growth capital should, however, seek independent, expert advice on the full range of financing options open to them.